What Is A Bridging Loan & How Does It Work?

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Whether you plan on developing properties, becoming a landlord, or moving into a new home, a bridging loan is one of the financing options that you can use to achieve your goal. This loan type is best for borrowers who need fast funds while in the middle of buying and selling property.

If you’ve never heard of this financing arrangement, you might be wondering: What is a bridging loan & how does it work? Read on to discover what this loan type is all about and decide if it’s the best solution for your funding needs.

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Our expert bridging finance advisors and specialists here at When The Bank Says No are also available to answer your questions, help you get started, and guide you through the process of getting the right bridging loan. Talk to one of our experts today!


What Is A Bridging Loan?

A bridging loan is a form of short-term financing that’s used to purchase property while waiting for proceeds from the sale of another property. This loan temporarily “bridges the gap” in your funds so you can pay the downpayment on a new home even before your current home is sold.

Bridging loans can last around 6 to 12 months. Unlike traditional loans, you can receive them in a matter of days or weeks, giving you access to cash quickly. However, they tend to have high interest rates and require collateral, such as real estate, business inventory, or other assets.

Landlords, property developers, and homeowners commonly use bridging loans in the following scenarios:

  • Buying properties at a fast-paced auction
  • Buying unmortgageable property and making it habitable
  • Renovating property and selling it for profit
  • Buying an in-demand home while in a collapsed property chain

How Does a Bridging Loan Work?

Generally, a bridging loan works by providing immediate funds in situations where financing is needed but unavailable. For instance, a homeowner who has found their dream house in a competitive real estate market might not get it in time if they wait for their existing house to sell.

A bridging loan solves this problem by allowing the homeowner to make the downpayment on their dream home. When their old home is eventually sold, they can use the proceeds to settle the bridging loan. For this reason, bridging loans are sometimes called “relocation loans.”

Note that bridging loans are secured by one or multiple assets. If you’re unable to pay the loan, there’s a likelihood of losing the assets. This poses a risk for homeowners who aren’t able to sell their old homes within the brief loan term.

Bridging Loan Regulations

A bridging loan can either be regulated by the Financial Conduct Authority (FCA) or not, depending on the type of property you’re acquiring. Borrowing funds for residential property would involve a regulated bridging loan, usually having a loan term of one year.

Meanwhile, bridging loans for commercial properties, investment properties, and buy-to-let properties can be unregulated and have terms of up to two years. The two types can also differ regarding eligibility criteria, affordability checks, consumer protection, and restrictions.

How Much Can You Borrow With a Bridging Loan?

The amount you can borrow through a bridging loan provider or lender ranges from £5,000 to £10 million, depending on your financial circumstances, credit history, and other factors. Usually, lenders offer a higher amount for first-charge loans than second-charge ones.

You’ll be able to borrow up to 75% of the value of your property under a regulated loan. So, if your loan is secured against a property worth £100,000, you could borrow up to £75,000. Unregulated loans can offer loan-to-values (LTV) of up to 100%.

How Can You Repay a Bridging Loan?

Before your lender or provider grants you a bridging loan, they’ll expect to know your exit strategy or how you plan to settle the loan balance. Some of the most common exit strategies include:

  • Selling property and using the proceeds to pay off the loan
  • Cash redemption from a matured investment, inheritance, or pension payout
  • Flipping property and using revenue from the sale to pay the loan
  • Developing property and using revenue from rentals or sold units to pay the loan
  • Refinancing the bridging loan with a mortgage

For more detailed and personalised information on how a bridging loan works, you can reach out to one of our trusted bridging finance advisors. Our experts can guide you through the whole process and help you find the best bridging finance deal for your circumstances.

What Are the Costs Involved in a Bridging Loan?

Bridging loans provide you with short-term access to funds quickly and conveniently, but this privilege comes at a cost. Interest rates for this type of loan are often higher than standard mortgages and other forms of financing. Interest rates vary between 6% to 20% APR.

Instead of annually, interest is applied monthly or daily. Your lender may charge you monthly interest, involving monthly payments to cover the interest on your loan. Interest can also be deferred or rolled up and paid as a lump sum after your loan term. 

Some loans involve retained interest, where interest for the entire loan term is calculated and added to the amount you’re going to borrow. You’ll pay the full amount at the end of the loan term.

Here’s a list of other fees associated with bridging loans:

  • Administration fees
  • Arrangement fees
  • Legal fees
  • Valuation fees
  • Exit fees
  • Broker fees

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Types of Bridging Loans

Varying financial needs and borrower credit trustworthiness can cause bridging loans to differ in interest rate, repayment terms, and loan period. There are two types of bridging loans that you can typically choose from:

Open Bridging Loan

The defining characteristic of open bridging loans is that they have no fixed repayment date. They usually have a maximum term of 12 months, and failing to sell your existing property within this time can result in various financial penalties. They involve more flexibility and higher risk.

Closed Bridging Loan

In this type of loan, the parties agree on a final repayment date. Paying the loan early may involve additional fees. Since there’s a set date, this loan type carries less risk and can be less expensive than open bridging loans. They’re usually offered for a period of ninety days. 

What Are First and Second Charge Bridging Loans?

Because a bridging loan is secured, your lender will place a charge against your property when you take out the loan. The charge is a legal agreement that states the order that various lenders should be repaid in case the property gets seized and sold upon failure to pay your loan. 

If you own the property outright and don’t have any other loans secured on it, then you’re going to have a first-charge bridging loan. That means if you aren’t able to pay back the loan, your bridging loan lender or provider will be the first to receive repayment.

But, if you already have one or more existing loans secured on your property, you’re going to have a second charge bridging loan. Mortgages will always be considered first-charge loans and will be paid off first before your bridging loan lender gets repaid.

In addition to being more difficult to obtain, second-charge loans are also more expensive. Taking out a second-charge bridging loan on your property will also require permission from the first-charge lender or mortgage provider.

Pros and Cons of Bridging Loans

Here’s an overview of bridging loans’ potential benefits and drawbacks to help you decide if they’re the right solution for your financing needs. 


Bridging loans offer the following advantages:

  • Faster processing time and more flexible lending criteria than a standard mortgage
  • Applicable to a wide variety of purchases that aren’t covered by regular mortgages
  • Ability to set your repayment terms according to your exit strategy
  • The majority of loans are offered without early repayment charges
  • Available borrowing amount can go as high as £10 million


You might want to consider the following disadvantages of bridging loans:

  • High interest rates ranging from 6% to 20% APR
  • High risk as one or multiple assets are required as security
  • Additional fees can add up to a high amount

If you’re still unsure if a bridging loan is the right choice for you, don’t hesitate to give our specialist short-term finance advisors a call. We’re happy to provide you with expert advice and access to the most suitable financial product for your needs.

How to Get a Bridging Loan

Before applying for a bridging loan, you’ll need to determine how much financing you need and how long you’ll need it. Prepare important details about your financial situation, including your property values, existing mortgages, monthly income, and the equity you have in your home. 

Lenders will also want to know about your exit strategy, so ensure that you have a plan in place. The next step includes doing thorough market research and comparing various bridging loans.

An experienced bridging finance advisor can help you scour the market for the most suitable deals. They can also support you during the application process and direct you to lenders who will likely approve your application. Talk to one of our advisors here.

As long as you fulfil the requirements, applying for a bridge loan can take a few hours and can even be done online. Approval takes 24 hours to a few weeks. Review all terms of the agreement before finalising your loan. And ensure you’re working with one of our experts at When The Bank Says No, who can answer any questions you may have about the loan and its terms. The funds will then be transferred to your account upon approval. 

Bridging Loans FAQs

1. Can I still get a bridging loan with bad credit?

Yes, getting a bridging loan is still possible, even if you have bad credit. Keep in mind that your credit standing may affect loan interest rates or additional fees. There are loan providers who specialise in bridging loans with substandard credit scores, but they can be more difficult to find. 

Our expert advisors can help you get in touch with lenders who will consider your application. It might be easier to get a bridging loan with bad credit if you have a good exit strategy for repaying the loan and can provide sufficient assets to serve as security.

2. What is the difference between a mortgage and a bridging loan?

Like mortgages, bridging loans involve interest payments and charges on the assets the borrower provides. The main difference between the two is that bridging loans are short-term in nature, offered for one year or less. Meanwhile, mortgages usually come with a 25 year-term.

Mortgages take much longer to acquire while bridging loans can be approved in a few days. Interest rates for bridging loans tend to be higher as well. Bridging loans offer more flexibility with the type of property you’re planning to acquire, and they can have less stringent criteria.

3. Are there any alternatives to a bridging loan?

If a bridging loan doesn’t quite fit your specific financial needs and circumstances, there are several other financing options that you can consider:

  • Remortgaging: You can remortgage your existing property to free up some funds
  • Let-to-buy: Switch your current mortgage into a let-to-buy to release some additional funds and have your new tenants pay rent to cover your old mortgage
  • Asset refinancing: Free up the extra cash that’s held up in your valuable assets
  • Unsecured personal loan: Take out a loan that doesn’t require any collateral for cash
  • Secured loan: Apply for another type of secured loan to access additional funds

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What Is a Bridging Loan & How Does It Work Summary

Bridging loans are short-term financing solutions for borrowers who need access to funding quickly and conveniently. This loan type allows you to “bridge the gap” that occurs when you’re buying and selling property.

If you plan to apply for a bridging loan, remember that our expert bridging finance advisors are always available to help. From finding the right lender and sending in your application to weighing the pros and cons of each deal, we’re here for you every step of the way.



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Emma Jones
Emma Jones
Emma began her career in Lloyds Banking Group, first in the unsecured & secured loans department at Halifax and later as a mortgage advisor at Lloyds. During 9 years in these roles and a further 2 years at Yorkshire Building Society, Emma was able to observe the impact of the recession, and how the banks let their customers down by denying loans and mortgages. Wanting to be a driving force for change, she stepped into a market advice role where she has been able to help clients when others couldn’t. Identifying a gap in the mortgage space, Emma went on to establish When the Bank Says No. As a keen property investor, she has been the focus of features in publications including The Sunday Times and This is Money. Emma’s greatest joy is overcoming the low expectations of their customers, many of whom have all but given up on getting a mortgage due. One thing Emma has learned through her own personal struggles is every client must be treated like a human and understood better by advisors and lenders in the industry. “We all have to navigate life events which can ultimately impact your financial status. It shouldn’t mean dreams of homeownership or business growth should have the breaks applied”. Emma and her team’s passion for helping people overcome the challenges they may face when applying for a mortgage have fuelled the success of When the Bank Says No.